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The High Court held that the ITAT erred in its conclusion. The Court reasoned that the intimation under Section 143(1) is a decision-making process by the Assessing Officer, either to accept the self-assessment or to proceed for scrutiny under Section 143(2) and (3). Therefore, the intimation, being a decision, is in the nature of an order passed by the Assessing Officer for the purpose of Section 263. The Court found that the decisions relied upon by the assessee (Prakashwati and Nazir Singh) were distinguishable as they dealt with assessment years prior to the 1989 amendment and involved very small revenue implications, which was not the case here. The potential revenue loss in the present case was substantial (Rs. 49,23,078/-). Consequently, the High Court set aside the impugned decision of the ITAT and remitted the appeal back to the ITAT to decide the matter on merits. The Court did not decide the merits of the case.
The High Court held that the Assessing Officer's exercise of jurisdiction was without jurisdiction. The Court reasoned that for Assessment Year 1991-92, an agreement as contemplated by Section 53A of the Transfer of Property Act had not come into existence. The agreement of 1984 stipulated completion between the fifth and sixth year, and the Bank's notice to complete on June 12, 1990, did not, by itself, create a new agreement or signify the existence of an agreement for sale in 1991-92. The Court referred to the judgment in Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income-Tax, stating that none of the minimum requirements for a transaction to amount to a transfer under Section 2(47) had been satisfied for Assessment Year 1991-92. There was prima facie no material before the Assessing Officer to believe that an agreement to sell had been entered into in the relevant assessment year that had escaped assessment. Consequently, the notice issued by the Assessing Officer was quashed, and all subsequent orders passed were set aside as being without jurisdiction. The Rule was made absolute.